Exchange Rates
Exchange Rates
Report
Done By Affan
Exchange Rates
What’s the exchange rate :
An exchange rate is a metric by which
the value of one currency is compared to
another. It can be thought of as a
measure of how much of the second
currency can be "bought" with an
amount of the first currency.
They play a crucial role in international
trade and finance, influencing the cost of
imports and exports, as well as the
profitability of foreign investments.
Exchange rates are commonly expressed
as a ratio, such as how many units of
one currency are needed to acquire one
unit of another currency.
For example, if the exchange rate of US
dollars (USD) to Pound sterling (GBP) is
1.29.
Exchange Rates
Purpose Of exchange Rates
1. Facilitates International Trade:
Exchange rates enable businesses and
individuals to convert currencies and
engage in cross-border trade.
When a country's currency depreciates
against another, its goods and services
become relatively cheaper for foreign
buyers, boosting exports. Conversely,
when a currency appreciates, imports
become more affordable.
2. Determines the Value of Foreign
Investments:
Exchange rates impact the value of
foreign investments and assets. If an
investor holds investments denominated
in a foreign currency, fluctuations in
exchange rates can affect the returns
and overall value of those investments.
3. Supports Monetary Policy
Central banks may adjust interest rates
or intervene in foreign exchange
Exchange Rates
markets to manage the value of their
currency.
By influencing the exchange rate, central
banks can impact exports, imports, and
the overall domestic economy.
4. Promotes Economic Stability
If a country experiences a large trade
deficit, a depreciation of its currency can
make its exports more competitive and
reduce the trade imbalance.
Conversely, if a country has a trade
surplus, an appreciation of its currency
can make imports more affordable and
help rebalance the trade.
5. Risk Management
Businesses that operate globally use
exchange rates to protect themselves
(using "hedging") against sudden
currency value changes that could hurt
profits.
6. Purchasing Power Parity (PPP)
Exchange Rates
Exchange rates help compare the cost of
living between countries. In theory, 1
BHD should buy the same amount of
goods in Bahrain as its equivalent in
dollars would in the USA.
Exchange Rates
Exchange Rate Determination
1. Floating Exchange Rate System
The dynamics of exchange rate
determination vary greatly across
different exchange rate regimes. In a
floating exchange rate system, rates
fluctuate freely in response to market
forces of supply and demand
If demand for a currency exceeds its
supply, its value will rise. Conversely, if
supply exceeds demand, its value will
fall.
2. Fixed Exchange Rate System
Contrastingly, in a fixed exchange rate
system, the value of a currency is
pegged to another currency or a basket
of currencies, or sometimes, a
commodity like gold.
The central bank ensures that the
exchange rate stays close to the pegged
value by buying or selling domestic
currency in the foreign exchange
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market. This system provides exchange
rate stability and predictability, which
can foster trade and investment.
Examples of Exchange Rate
Effects
1. U.S. Dollar and Global Trade
The U.S. dollar is one of the most widely
used currencies in international trade
and finance. Its value affects trade
balances, inflation, and investment flows
around the world. When the dollar
appreciates, it can make U.S. exports
more expensive, leading to a potential
decline in export demand. However, a
strong dollar can make imports cheaper,
which may benefit U.S. consumers and
businesses that rely on foreign goods.
For example, when the U.S. dollar
strengthens against the Chinese yuan,
American consumers may benefit from
cheaper Chinese products, but U.S.
exporters may face lower demand for
their goods in China.
Exchange Rates
Exchange Rates
Bahrain Exchange Rates
As of April 27, 2025, the Bahraini Dinar
(BHD) remains one of the world's
strongest currencies, primarily due to its
fixed peg to the U.S. dollar and Bahrain's
stable economic policies.
Bahraini Dinar Exchange Rates (April 27,
2025)
📊 Against Major Currencies
US Dollar (USD): 1 BHD ≈ 2.653 USD
Euro (EUR): 1 BHD ≈ 2.3386 EUR
British Pound (GBP): 1 BHD ≈ 1.9975
GBP
Indian Rupee (INR): 1 BHD ≈ 227.09
INR
Japanese Yen (JPY): 1 BHD ≈ 381.81
JPY
🔒 Currency Peg and Stability
The Bahraini Dinar is officially pegged to
the U.S. dollar at a rate of 1 BHD = 2.659
USD. This peg has contributed to the
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Dinar's stability and high value, making
it the second most valuable currency
globally, following the Kuwaiti Dinar.
Conclusion
Exchange rates are the metric by which
the value of one currency is compared to
another and are crucial in finance for
determining currency values and
purchasing power.
Various factors, including economic,
political, and external influences,
contribute to the fluctuations in
exchange rates.
Economic factors such as interest rates,
inflation rates, and economic
indicators impact currency values, while
political stability and government
policies also play a significant role.
External events like changes in
international trade relations and global
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economic conditions further affect
exchange rates.
